At Elite Law Solicitors, our expert bridging loan solicitors regularly act for borrowers of short-term finance including bridging loans, development loans and commercial mortgages.
As an alternative to traditional bank finance, short term loans often referred to as bridging loans are becoming increasingly popular with landlords, developers and homeowners alike to ‘bridge’ gaps in funding. Examples include:
Securing the purchase of a property before the sale of another
Purchasing a property not suitable for a conventional mortgage
Completing an auction purchase within required timescales
Finishing off refurbishment works and/or minor developments
Refinancing and/or consolidating existing debts
What is a Bridging Loan?
A bridging loan is a short-term secured loan, usually with a repayment term of between 6-24 months. Typically offered by smaller, more nimble lenders, bridging loans offer a faster way to access finance without having to deal with the long waiting times and layers of bureaucracy associated with institutional lenders.
However, the trade-off is that bridging loans are more expensive than conventional mortgages or term loans, so it important that borrowers have exit-plans in place to ensure repayment of the bridging loan as early as possible.
In addition to office meetings, our bridging loan solicitors also offer remote meetings via telephone and video conferencing software so can assist you wherever you are based.
Development loans are used to fund larger-scale developments, from £200,000.00 refurbishments or conversions to multi-million pound new-build projects. Development loans can be used for residential, commercial and mixed-use properties, and can be applied for by both experienced and first-time developers. Depending on the nature and timing of the building works, development loans are occasionally offered up-front in full by the lender but it is more normal for the loan to be drawn down in tranches, with fixed amounts being made available at various stages of the works.
What can a bridging loan be used for?
Bridging loans tend to be a property-specific type of loan and are advertised as such by lenders that offer this service. Unlike conventional loans or mortgages, bridging loans are not a long-term solution to long-term debt. Instead, bridging loans are used for short-term access to money as and when needed – they “bridge the gap” in circumstances where you need access to money immediately where other lenders may take longer to reach a decision.
Uses for bridging loans include:
Meeting looming transaction deadlines
If you have an upcoming deadline for a property transaction, a bridging loan can be a viable way to access necessary funds when other lenders or banks are delayed. With payment typically being approved within a few days, you can meet necessary deadlines and pay back your bridging loan upon receipt of your long-term loan or mortgage.
Property purchase prior to a sale
Whether a buyer has dropped out of a purchase or a part of a longer property chain has broken, a bridging loan can enable you to move houses with additional financial security. This provides you with a longer window to find a new buyer for your property, while still allowing you to move on to your new home on schedule.
Property auction purchases
Purchasing at auction requires a certain level of spontaneity, which may not quite fit into the typical process for a standard mortgage lender. If you uncover the ideal property and do not want to risk missing out, choosing a bridging loan can be an option to access funds for that purchase while applying to a lender for a long-term solution.
Refurbishment or property to be sold
If you have a property that requires refurbishment before the sale, a bridging loan is one option available to you. This short-term loan can allow you to make necessary renovations, with the cost of the loan covered following the sale of the property.
A bridging loan may be a viable choice for landlords and property investors to support your expansion with short-term financing. Many landlords rely on rental income to cover investments. By offering a fast way to expand, bridging loans avoid the drawn-out nature of applying for long-term finance while losing potential rental income.
How do I qualify for a bridging loan?
Whether or not you are eligible for a bridging loan will depend on numerous factors. While each lender may have different specifications, these factors will typically be considered when you apply for a bridging loan:
The size and length of your loan
While bridging loans do not have a set upper limit on the amount you can borrow, you will still need to prove that the amount of money you would like to borrow is feasible. In most cases, bridging loans will be limited by LTV – loan-to-value. The LTV is typically no more than 75% of the value of the property. A lender will also consider how long you would like the loan repayment window to be. Anything between 24 hours and 24 months is typical. If you agree upon a specified amount of time, this cannot be changed at a later date.
The reason you need a bridging loan
Bridging loans can be used for a range of purposes, as we have detailed above. Your lender will need information about how you would like to use for bridging loan. If your purpose is legal and your circumstances meet their criteria for lending, you should be eligible to borrow the amount you need.
Security against your bridging loan
As with the majority of loans, bridging lenders will ask for security against the money you borrow. Any assets you own may be used as security, including property. If you have security, it is more likely that your bridging loan will be approved.
Your exit strategy for your short-term loan
Your exit strategy is an integral part of your application for a bridging loan. Your lender needs to know that you can repay your loan in full within the approved window of time. The exit strategy you provide determines where the money is coming from, whether you choose to move to a long-term finance option or you plan to sell your property to release funds.
How much can I borrow?
Bridging loans can range in value by a significant amount depending on your individual requirements and goals. While the lower limit tends to be around £20-30,000 depending on the lender, you may be able to access millions in funds as a short-term financial solution.
How quickly can a bridging loan be arranged?
Unlike a typical mortgage, bridging loans do not require a long turn-around time and approvals process. While there is no set time between application and approval, bridging loans are generally far quicker than long-term finance options. If there are no delays or clarifications to be made, you may be able to access the funds from your bridging loan a few days following application. Instructing experienced bridging loan solicitors can help make the process as quick and efficient as possible.
Are there any early repayment charges when taking out bridging loans?
Certain repayment charges may apply when you take out a bridging loan, but this depends on the exact terms of your financial agreement. A closed bridging loan is more conventional and generally sets out a fixed repayment date for your loan. However, even closed loans are flexible by design. This practice means you are less likely to be charged exit fees than you would be for a traditional mortgage or other types of long-term loans.
On the other hand, open bridging loans are not focused on a specific date but on an event that produces income. If, for example, you take an open bridging loan dependent on the sale of your property, you will pay back that loan when the money for the sale comes through. By their nature, open bridging loans do not have an early or late payment, as you pay when the money becomes available.
Can I obtain a bridging loan if I have bad credit?
Whether or not you will be approved for a bridging loan with poor credit depends solely on your exit strategy. As an integral part of applying for a bridging loan, a lender wants to know that you will be able to pay them back with no risk. Because you provide security for your bridging loan, there is less of a risk to the lender overall, much like any other loan requiring collateral.
If your exit is selling your property to pay back your loan, this is a reliable source of income, which may improve your chances even if you have poor credit. But if you are relying on a remortgage for finance, you may find that lenders cannot provide you with the loan you need. A poor credit rating may not be a problem for bridging loans specifically. If your exit is affected by your financial history, this may prove an issue during your application.
What type of security can I use when applying for bridging finance?
Bridging financing is typically secured against a property you own or a property you are going to purchase. They may also be secured against other valuable assets, though property is the top option for many lenders. The bridging loan is secured by taking a charge over the property or multiple properties, which is then formalised and registered with the Land Registry.
Can I apply for bridging finance as a partnership or limited company?
While the exact requirements of a specific lender may vary slightly, in general, most will offer bridging loan services to individuals, partnerships, and limited companies as standard. This applies to both residential and commercial property. When you apply for bridging finance as a business, you will still need to provide a form of security and exit strategy as part of your application.
If my property is still mortgaged, can it still be used as security for bridging finance?
If your current property has a mortgage, the lender will examine the equity in the property once the remaining mortgage balance has been deducted. This is known as a second or third charge bridging loan, as a first charge – the mortgage – already exists on the property. The higher the amount left on the mortgage, the less security you can provide to lenders. This issue may be reflected in higher interest rates or less freedom in the amount you can borrow.
What is the difference between a bridging loan and development finance?
Bridging loans and development finance are two relatively similar options, but there are some key differences to consider before choosing one or the other. While bridging loans are short-term and short notice, designed to help you access finance for properties quickly, development finance is specifically for the development of properties themselves.
When you choose a bridging loan, you will usually receive lump-sum payment upfront. By contrast, development finance is a specialist option with payment over instalments. The other critical difference between the two is how borrowing is calculated. While bridging loans are calculated based on loan-to-value, development finance is based on GDVC or gross development value.
Development finance may suit you best if you are looking to cover extensive construction costs for a new development on land or to build up or extend a property. If you want to purchase a property and cover up-front fees quickly and effectively, a bridging loan bridges the gap between purchase and long-term funding.
If you are unsure which type of finance is right for you, get in touch with one of our experienced bridging loan solicitors by calling 0800 086 2929, emailing email@example.com or by completing our Free Online Enquiry Form. Our knowledgeable experts can provide in-depth guidance and support in choosing the best finance solution for your individual goals.
What costs are involved with bridging loans?
As with any other financial agreement, you will need to pay interest on your bridging loan. Beyond that interest charge, there are others costs you will have to cover. These include:
Arrangement fees are what you pay to a broker or service to ‘set up’ your bridging loan. These are typically charged on a percentage basis, with 2% of the value of your loan as the standard. For more significant amounts, you may be able to get a smaller arrangement fee of 1%.
If you own property and put it as security against your bridging loan, a valuation is required. You will need to pay a surveyor to complete this valuation, whether you do so personally or through a specific lender. In some cases, desktop valuations or recently completed valuations may be accepted. It is worth noting that you will have a complete valuation on multiple properties if you are using more than one as security.
Exit administration fees
In some cases, you may be required to cover exit and administration fees as part of ending your bridging loan. These fees cover the work needed to remove the lender charge from your security property. If you are charged for exit fees, this cost will likely be around 1% of the value of your loan.
If you choose to work with experienced bridging loan solicitors for your bridging loan application, these legal costs should be factored in. Even if you do not hire a solicitor personally, the lender may choose to charge you for legal expenses as part of their due diligence.
What is the difference between an open and closed bridging loan?
Open and closed bridging loans are two minor variations on the same type of finance. A closed bridging loan indicates a set, final date for your loan, at which point everything should be paid back. By contrast, an open bridging loan is designed to be paid back based on your exit strategy – for example, selling a property or getting a mortgage.
What are the consequences of not exiting the bridge at the end of the term?
In most cases, you will be able to pay back your loan based on your planned and considered exit strategy. But should you be unable to meet the specifics of your exit process, there are a few things you can do.
Firstly, you may choose to ask the lender to extend the term due to your circumstances. This may involve new fees for arrangement and may also change the terms and requirements of your loan overall. If your lender is not willing to do so or you prefer to look elsewhere, you can choose to re-bridge with another lender.
If possible, it is best to avoid missing the end of the term for your bridging loan. Even if you can re-bridge with a new lender, you have an adverse history of repayment, as well as the potential for higher interest rates due to greater risk.
Is there an alternative to a bridging loan?
Depending on your exact requirements, there are a few different alternatives to accessing money. These include:
Unsecured lending with a personal loan, credit card or overdraft
Remortgaging a property to access equity
Second charge mortgages for a second loan against the property
Finance loans for specific purposes, such as buy to let or property development finance
Do I need to instruct bridging loan solicitors?
The conveyancing process involved in bridging loans makes it advisable to seek the support of appropriately experienced bridging loan solicitors. A qualified solicitor can ensure your bridging loan has the best chances of success, from personal requirements to bridging loans for businesses. If you are considering a bridging loan, the support of legal experts can ensure that all matters are dealt with quickly and efficiently.
How much do bridging loan solicitors charge?
The fees charged by bridging loan solicitors may vary depending on several factors, including the value of the loan itself and the complexity of your case.
At Elite Law Solicitors, we favour quoting fixed fees, which will only change if due to unforeseen circumstances the process is taking longer than expected.
We have a specialist team of property lawyers who regularly act for borrowers of short term secured finance ranging from £30,000.00 bridging loans to multi-million pound development finance. We are familiar with lenders’ usual requirements and understand the importance of working closely with clients and their brokers to ensure a rapid and smooth completion.
Our team are based in Sussex, Buckinghamshire and Hertfordshire but we regularly travel to meet clients in and around London and the Home Counties. In addition to office meetings we also offer remote meetings via telephone and video conferencing software so can assist you wherever you are based.
An experienced bridging loan solicitor will have an initial consultation with you, free of charge, to discuss your situation in more detail. Once we understand your circumstances better, we can provide you with a clearer understanding of how we can help you. We will also provide you with a price quotation and a choice of funding methods at the outset.
“Harry and the team were fantastic, professional and made you feel really important, as if you were the only client they were dealing with. Highly recommended, fast and careful attention to detail. Thank you.”
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